LAWRENCE COUNTY, ET AL., APPELLANTS V. LEAD-DEADWOOD SCHOOL
DISTRICT NO. 40-1
No. 83-240
In the Supreme Court of the United States
October Term, 1983
On Appeal From the Supreme Court of the State of South Dakota
Brief for the United States as Amicus Curiae Supporting Appellants
TABLE OF CONTENTS
Interest of the United States
Statement
Summary of argument
Argument:
The South Dakota statute frustrates the purposes
of the federal Payments in Lieu of Taxes Act by
depriving local government recipients of federal
payments of discretion in determining how to
spend those funds
Conclusion
QUESTION PRESENTED
Whether South Dakota Codified Laws Ann. Sec. 5-11-6 (rev. 1980) is
inconsistent with the Payments in Lieu of Taxes Act, 31 U.S.C. 6901 et
seq., and therefore invalid under the Supremacy Clause to the extent
it requires that funds received by local government units under the
federal statute be apportioned in the same manner as taxes are
distributed.
INTEREST OF THE UNITED STATES
The question presented by this case is whether a state statute that
directs local government recipients of federal in lieu of taxes
payments to distribute those funds in the same manner as general tax
revenues are distributed conflicts with the scheme established by the
Payments in Lieu of Taxes Act, 31 U.S.C. 6901 et seq. In response to
the Court's invitation, we filed a brief at the jurisdictional stage
urging the Court to note probable jurisdiction and to reverse the
decision of the South Dakota Supreme Court upholding the state statute
against a challenge under the Supremacy Clause. The Court having
determined to give the case plenary consideration, we deem it
appropriate now to submit a brief on the merits.
The United States has a substantial interest in the outcome of this
case. The Department of the Interior is responsible for the
administration of the Payments in Lieu of Taxes Act. In our view, the
state statute at issue conflicts with the language and legislative
purpose of the federal statute, under which localities, not states,
are to have discretion with respect to use of the federal money.
Under the decision of the court below, localities will be deprived of
this discretion, with the result that local services of importance to
activities on federal lands may be underfunded. Moreover, other
states may look to the decision below as justification for enacting
similar statutes, thus undermining further the congressional purpose.
STATEMENT
1. The Payments in Lieu of Taxes Act, 31 U.S.C. 6901 et seq., /1/
requires the Secretary of the Interior to make annual payments to
local governments within whose boundaries the United States own
tax-exempt federal "entitlement lands." /2/ Eligible units of local
government include counties, towns and other general purpose political
subdivisions of a state, but not special purpose public bodies, such
as school boards. /3/ The purpose of this Act is to compensate local
governments in part for the loss of tax revenues resulting from the
tax immunity of such federal lands. See pages 4-5, 13-17, infra. The
lands to which the Act applies include wilderness areas and other
lands within the National Park System and National Forest System,
lands administered by the Bureau of Land Management, lands used by the
Army Corps of Engineers for water resource development projects and
dredge disposal areas, and lands on which semi-active and inactive
military installations are located. See 31 U.S.C. 6901(1). These
lands total over 450 million acres. Payments under the Act amount to
almost $100 million annually and are made to approximately 1,700
counties, located in 49 states, the District of Columbia, Puerto Rico,
the Virgin Islands, and Guam. See Division of Finance, Bureau of Land
Management, U.S. Dep't of the Interior, Payments in Lieu of Taxes,
Fiscal Year 1983, at 1.
The Payments in Lieu of Taxes Act was the product of many years of
consideration at the federal level. /4/ Over the years Congress has
enacted a number of different impact aid programs designed to
compensate states and localities for loss of tax revenues resulting
from the tax immunity of federal lands. /5/ But the revenues that
fund those impact aid programs generally are derived from
income-producing activities on federal lands, such as oil and gas
leasing, mining, and grazing, and the payments are therefore likely to
vary from year to year. Moreover, in a number of instances, funds
paid under the impact aid programs are earmarked by statute for
particular purposes, such as the building of public roads or the
support of public schools. See S. Rep. 94-1262, 94th Cong., 2d Sess.
7 (1976). In 1964, Congress established the Public Land Law Review
Commission and assigned it the task of reviewing the full range of
laws applicable to federal lands and recommending any needed
revisions. /6/ The Commission's review included consideration of the
shortcomings of the various programs under which states and localities
received federal payments on account of the tax immunity of federal
lands within their boundaries.
In its 1970 final report, the Commission concluded that "it is the
obligation of the United States to make certain that the burden of
(the policy of retaining lands under federal ownership) is spread
among all the people of the United States and is not borne only by
those states and governments in whose area the lands are located.
Therefore, the Federal Government should make payments to compensate
state and local governments for the tax immunity of Federal lands."
Public Land Law Review Commission, One Third of the Nation's Land: A
Report to the President and to the Congress 236 (1970). The
Commission recommended replacement of the numerous revenue-sharing
statutes then on the books with a single payment in lieu of taxes.
However, Congress concluded that it was not feasible at that time to
repeal the existing impact aid programs. S. Rep. 94-1262, supra, at
11. Instead, in 1976, Congress passed the Payments in Lieu of Taxes
Act, which provides for a minimum level of payments to local
government units to compensate partially for lost revenues not covered
by payments received under other federal statutes.
2. In 1979, the State of South Dakota enacted a statute requiring
local governments to distribute federal and state payments in lieu of
taxes in the same way as general tax revenues are distributed. S.D.
Codified Laws Ann. Sec. 5-11-6 (rev. 1980) provides:
The county auditor shall distribute federal and state
payments in lieu of tax proceeds in the same manner as taxes are
distributed.
Since appellant Lawrence County allocates to its school districts
approximately 60% of general tax revenues, the South Dakota statute
effectively requires it also to apportion to the school districts 60%
of the federal in lieu of taxes payments it receives.
3. Lawrence County originally brought an action in the United
States District Court for the District of South Dakota seeking a
declaration that the state statute is in conflict with the Payments in
Lieu of Taxes Act and is therefore void under the Supremacy Clause of
the United States Constitution (Art. VI, Cl. 2). The district court
held that the federal statute vests total discretion in the counties
with respect to distribution of federal in lieu of taxes payments and
that the states may not dictate the manner of distribution. The court
therefore declared the South Dakota statute void insofar as it affects
distribution of funds received under the Payments in Lieu of Taxes Act
and granted summary judgment for Lawrence County. Lawrence County v.
South Dakota, 513 F. Supp. 1040 (D.S.D. 1981). However, the United
States Court of Appeals for the Eighth Circuit vacated the district
court judgment on the ground that the County's invocation of the
Supremacy Clause did not convert the action into one arising under
federal law for the purpose of federal jurisdiction under 28 U.S.C.
1331. Lawrence County v. South Dakota, 668 F.2d 27 (1982).
4. Lead-Deadwood School District No. 40-1, appellee in this Court,
then filed a complaint for writ of mandamus in the Circuit Court for
the Eighth Judicial Circuit of South Dakota, seeking to compel
Lawrence County to distribute federal in lieu of taxes funds according
to S.D. Codified Laws Ann. Sec. 5-11-6 (rev. 1980). The trial court
declined to issue the writ, citing the Payments in Lieu of Taxes Act
(J.S. App. 8a-10a). The court held that the South Dakota statute
stood as an "obstacle to the accomplishment and the execution of the
full purposes and objectives of Congress and as such is
unconstitutional and void under the supremacy clause of the federal
and state constitutions" (J.S. App. 10a).
The Supreme Court of South Dakota reversed (J.S. App. 1a-7a).
Because the State Supreme Court found the language of the federal
statute to be "plain, clear and rational" (id. at 3a), it concluded
that review of the legislative history was unnecessary. The court
found no conflict between the state and federal statutes, reasoning
that the federal statute required only that payments be used for a
governmental purpose and that support of schools is a valid
governmental purpose (id. at 4a). Two justices dissented on the
ground that the federal statute as a whole, along with its legislative
history, indicated that "Congress intended (that) the county be vested
with total discretion in distributing (federal in lieu of taxes)
funds" (id. at 6a).
SUMMARY OF ARGUMENT
Under the federal Payments in Lieu of Taxes Act Congress conferred
discretion on local governments to decide how they wish to spend the
federal funds they receive under the Act. Because S.D. Codified Laws
Ann. Sec. 5-11-6 (rev. 1980) limits the manner in which local
governments may apportion those federal funds, it conflicts with the
congressional purpose and is therefore invalid under the Supremacy
Clause.
A. The language of the Payments in Lieu of Taxes Act indicates that
the local government recipients of funds under the Act are to have
complete discretion in determining how to allocate those funds. Under
the Act, recipients (which must be general government units, rather
than special purpose units such as school districts) "may use"
payments under the Act "for any governmental purpose."
B. Even if the language of the statute were not decisive on this
point, the legislative history makes clear that Congress intended that
local government recipients have discretion in allocating federal
payments under the statute. Committee reports and congressional
debate indicate that there were to be no restrictions on use of the
funds and that the payments were designed to enable local governments
(as opposed to states) to meet a wide range of governmental needs
related to activities on federal lands.
C. The Department of the Interior has consistently interpreted the
Payments in Lieu of Taxes Act as requiring that payments under the Act
be made to general purpose local government units and that those units
retain the discretion to use the funds for any governmental purpose.
That interpretation of the Act by the agency charged with its
administration is entitled to deference.
D. The South Dakota statute interferes with the congressional
purpose, even though it does not prescribe any particular formula or
specify the programs for which the funds must be expended. The
requirement that the federal payments be distributed in the same
manner as taxes may prevent a local government from using federal
funds where they are needed most. It is doubtful that local
governments could adjust their budgets in advance to offset the effect
of the state-mandated distributed scheme for federal payments; in any
event, local governments receiving those funds should not be required
to engage in complex budgetary maneuvers in order to circumvent state
intrusion on the federal program.
ARGUMENT
THE SOUTH DAKOTA STATUTE FRUSTRATES THE PURPOSES OF THE FEDERAL
PAYMENTS IN LIEU OF TAXES ACT BY DEPRIVING LOCAL GOVERNMENT RECIPIENTS
OF FEDERAL PAYMENTS OF DISCRETION IN DETERMINING HOW TO SPEND THOSE
FUNDS
The South Dakota Supreme Court erred in holding that S.D. Codified
Laws Ann. Sec. 5-11-6 (rev. 1980) is consistent with the federal
Payments in Lieu of Taxes Act. The federal statute is properly read
as conferring discretion on local governments to determine how they
will spend the federal payments they receive under the statute.
Because the state statute requires local governments to apportion
those payments in a particular manner, it conflicts directly with the
mandate of the federal statute and interferes with the accomplishment
of Congress's goals.
It is well settled that "'an unexpressed purpose to nullify * * *
(state power) is not lightly to be attributed to Congress.'"
California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445
U.S. 97, 103-104 (1980) (quoting Parker v. Brown, 317 U.S. 341, 351
(1943)). Where possible, "the proper approach is to reconcile 'the
operation of both statutory schemes with one another rather than
holding one completely ousted.'" Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Ware, 414 U.S. 117, 127 (1973) (quoting Silver v. New
York Stock Exchange, 373 U.S. 341, 357 (1963)). Nevertheless, this
Court has frequently reiterated that a state statute is void if it
"stands as an obstacle to the accomplishment of the full purposes and
objectives of Congress." Silkwood v. Kerr-McGee Corp., No. 81-2159
(Jan. 11, 1984), slip op. 9; Pacific Gas & Electric Co. v. State
Energy Resources Conservation & Development Comm'n, No. 81-1945 (Apr.
20, 1983), slip op. 11; Fidelity Federal Savings & Loan Ass'n v. de
la Cuesta, 458 U.S. 141, 153 (1982); Ray v. Atlantic Richfield Co.,
435 U.S. 151, 158 (1978); Florida Lime & Avocado Growers, Inc. v.
Paul, 373 U.S.132, 142-143 (1963); Hines v. Davidowitz, 312 U.S. 52,
67 (1941). Accordingly, to determine whether state and federal laws
are in conflict it is necessary first to "ascertain Congress' intent
in enacting the federal statute at issue." Shaw v. Delta Air Lines,
Inc., No. 81-1578 (June 24, 1983), slip op. 9. See also Chicago &
N.W. Transportation Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 317
(1981); Perez v. Campbell, 402 U.S. 637, 644 (1971).
In light of these principles, we show below that the South Dakota
statute is invalid under the Supremacy Clause to the extent it
mandates a particular allocation of payments received by local
governments under the federal statute.
A. The language of the Payments in Lieu of Taxes Act indicates that
local governments that receive funds under the Act are to have
complete discretion in expending or allocating those funds. 31 U.S.C.
6902(a) states that units of local government "may use" payments under
the Act "for any governmental purpose." The import of this broad
language is that recipients of federal payments may choose how to
apply them, so long as the funds are used for some valid governmental
purpose. There is no suggestion in the language that any entity other
than the recipient may impose constraints on the manner in which the
payments are spent.
The federal statute also makes it clear that payments are to be
made directly to general government units, not to special purpose
units such as school districts; indeed, appellee has admitted as much
(Mot. to Aff. 2, 7). Under the recently amended version of 31 U.S.C.
6901(2), a "unit of general local government" is defined as a
political subdivision that is "the principal provider * * * of
governmental services" (including, e.g., public safety, social
services, and transportation) within a state. The previous version of
Section 6901(2) defined "unit of general local government" as a
"general purpose political subdivision of a State." Thus, it is
general purpose units, such as appellant Lawrence County, that are
entitled to receive the federal funds and to decide how they will be
spent.
While a county may choose to allocate some federal in lieu of taxes
funds to school districts, it need not do so. In explaining the
Payments in Lieu of Taxes Act, the court in Altus-Denning School
District No. 31 v. Franklin County, 568 F. Supp. 95, 101 (W.D. Ark.
1983), correctly noted:
(E)ven though Congress no doubt intended for some of the in
lieu of tax funds to go to school districts, believing that the
counties would disburse these funds with prudence, equity, and
an eye to the obvious needs of the school districts, Congress
nonetheless expressly allowed whichever unit constitutes the
"unit of local government" of (31 U.S.C. 6901) to expend these
funds for any governmental purpose. /7/
See also Kendall v. Towns County, 146 Ga. App. 760, 762, 247 S.E.2d
577, 579 (1978). /8/
The South Dakota Supreme Court construed the language of the
Payments in Lieu of Taxes Act as signifying only a requirement that
funds be used for some governmental purpose, reflecting congressional
indifference whether the funds were ultimately paid over to school
districts or some other public body. In the court's view, the
language of the federal statute does not preclude a state requirement
that local governments pay the federal funds to school districts. /9/
It is conceivable that the words "may use" in 31 U.S.C. 6902(a) could
be read in the manner chosen by the South Dakota Supreme Court. Cf.
H.R. Rep. 97-651, 97th Cong., 2d Sess. 2 (1982). However, in our
view, this reading of the federal statute is not the most natural one.
The words "may use," employed in conjunction with the reference to
"any" governmental purpose, appear on their face to give local
governments the discretion themselves to choose the governmental
purposes for which they will use the funds.
B. Even if the language of the Payments in Lieu of Taxes Act were
not decisive, the legislative history clearly supports our reading of
the statute. /10/ That history indicates that Congress intended not
only that local governments receive increased levels of federal
funding as a result of the Payments in Lieu of Taxes Act, but also
that they have discretion in allocating those funds. Both
congressional committees that considered the legislation stated
unequivocally that "payments under (the Payments in Lieu of Taxes Act)
should go directly to units of local government since the local
governments are the entities which assume the burden for the tax
immunity of these lands. The Committee does not believe these new
payments should be restricted or earmarked for use for specific
purposes and the bill allows these payments to be used for any
governmental purposes." S. Rep. 94-1262, supra, at 15; H.R. Rep.
94-1106, 94th Cong., 2d Sess. 12 (1976). During both the House and
Senate debates, the legislation was described by its sponsors as
giving local governments the discretion to determine how the funds
should be spent. Representative Quillen stated: "The funds are not
earmarked for specific purposes such as roads or schools. Rather, the
local governments are given the discretion to use these moneys as they
determine, which is as it should be." 122 Cong. Rec. 25742 (1976).
Senator Moss explained: "Payments under H.R. 9719 are to go directly
to the units of local government since it is the local governments
that assume the burden for the tax immunity of these lands and the
payments may be used for any purpose the receiving governmental unit
determines." Id. at 34596.
In providing that local governments were to be the recipients of
the payments under the new statute, Congress expressly rejected as
unsatisfactory the scheme of many of the existing impact aid programs
under which states (rather than local governments) received funds and
decided how they would be distributed. S. Rep. 94-1262, supra, at 9
(noting that, under existing programs, "(i)n far too many States, the
result has been that the funds are either kept at the State level and
not distributed to local governments at all or are parcelled out in a
manner which provides shares to local governments other than those in
which the Federal lands are situated and where the impacts of the
revenue and fee generating activities are felt"); id. at 15. /11/
The Senate committee noted that it is local governments that bear the
burden of providing a wide variety of services related to the presence
of federal land within their boundaries (id. at 8-9):
These lands attract thousands of visitors each year, yet the
intangible economic benefits to the local economy from tourist
related activities in and adjacent to these lands do not usually
accrue to the local taxing authority. Income and sales taxes
are sources of funds for the State treasury, yet the local
governments are the entities which must provide for law
enforcement, road maintenance, hospitals, and other services
directly and indirectly related to the activities on these
lands.
Congress also expressed dissatisfaction with the earmarking of
funds that had resulted either from federal statutory requirements or
the fact that states controlled the distribution of funds under some
programs. The Senate committee noted that use of funds under existing
programs was often restricted to construction and maintenance of roads
and schools (S. Rep. 94-1262, supra, at 9), but that the range of
local government needs was in fact much greater (ibid.):
(L)ocal governments are called upon to provide many other
services to the Federal lands or as a direct or indirect result
of activities on the Federal lands. These services include law
enforcement; search, rescue and emergency; public health;
sewage disposal; library; hospital; recreation; and other
general local government services. It is only the most
fortunate of local governments which is able to juggle its
budget to make use of those earmarked funds in a manner which
will accurately correspond to its community's service and
facility needs.
In addition, Members of Congress called attention to the budgeting
difficulties created by the fluctuations in revenue under existing
impact aid programs and the need of local governments for funds that
could be applied flexibly to fund priority projects. See, e.g., 122
Cong. Rec. 25747 (1976) (statement of Rep. Weaver) (noting
fluctuations in revenue under existing impact aid programs); id. at
25752 (statement of Rep. Alexander) (noting immediate need for federal
payments to continue construction of a new school building in Stone
County, Arkansas, since maximum allowable increase in local taxes did
not yield sufficient funds); id. at 25755 (statement of Rep. Holt)
(noting difficulties caused by annual fluctuations in impact aid).
/12/ Thus, it was an important purpose of the new statute to give
local governments control over federal funds and the freedom to
allocate them in a manner that would allow satisfaction of the wide
range of needs for governmental services that arise from the presence
of federal lands. See id. at 25754 (statement of Rep. McCormack) (new
legislation "will now assure the counties a definite amount that will
not fluctuate with lease production abilities and will not be
specifically earmarked for schools and roads but can be expended on
the basis of priority need so that each county can now budget
accurately").
A subsequent amendment to the Payments in Lieu of Taxes Act sheds
further light on Congress's intent in enacting the original statute.
See Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 380-381 (1969).
In 1983, Congress amended the Act to authorize states to make limited
redistributions of payments among units of general purpose local
government within the same county. Pub. L. No. 98-63, Sec. 3(4), 97
Stat. 324, to be codified at 31 U.S.C. 6907. See J.S. App. 36a. The
1983 amendment was passed in response to Meade Township v. Andrus, 695
F.2d 1006 (1982), in which the Sixth Circuit held that the Secretary
of the Interior had exceeded his authority under the Payments in Lieu
of Taxes Act in refusing to provide for payments to townships as well
as counties in Michigan. See 129 Cong. Rec. S8444 (daily ed. June 15,
1983). The fact that Congress found it necessary to provide expressly
that a state may reallocate funds received by local governments in
specified circumstances lends additional weight to the conclusion
that, in the absence of such a provision, Congress did not intend that
states be able to dictate the distribution of in lieu of taxes
payments.
C. The Department of the Interior -- the agency charged with
administration of the Payments in Lieu of Taxes Act -- has
consistently interpreted that statute as requiring that federal
payments be made to general purpose local government units and that
those units retain the discretion to use the funds for any
governmental purpose they choose. The Department promulgated 43
C.F.R. Subpt. 1881 in 1977, soon after passage of the Act. 43 C.F.R.
1881.0-5(b)(2) makes clear that school districts may not receive funds
directly. It provides: "The term 'unit of general government'
excludes single purpose or special purpose units of local government
such as school districts or water districts." See also 42 Fed. Reg.
51580, 51581 (1977) (counties are the appropriate recipients of in
lieu of taxes funds in South Dakota). 43 C.F.R. 1881.2 states that
payments made to local governments (with the exception of the special
payments authorized by 31 U.S.C. 6904(b)) may be used for any
governmental purpose. /13/ The Department's interpretation of the Act
as foreclosing either direct payments to school districts or
limitations on use of the funds is entitled to deference. See, e.g.,
Blum v. Bacon, 457 U.S. 132, 141 (1982); FEC v. Democratic Senatorial
Campaign Committee, 454 U.S. 27, 31-32 (1981); Zenith Radio Corp. v.
United States, 437 U.S. 443, 450-451 (1978); Udall v. Tallman, 380
U.S. 1, 16 (1965). /14/
D. Appellee appears to contend (Mot. to Aff. 8-9) that the South
Dakota statute does not interfere significantly with the discretion of
counties to allocate the federal payments they receive, since the
state statute does not prescribe any particular formula or specify the
programs for which the funds must be expended, but merely directs the
recipient counties to allocate the federal moneys "in the same manner
as taxes are distributed." But however appropriate that general
direction may appear on a superficial glance, it nevertheless
represents a not insignificant limitation on the discretion of
counties to choose how they will spend the federal payments. A
county's needs may not necessarily correspond to the manner in which
its taxes are distributed. For example, an unexpected need for
funding a particular activity (e.g., a trial in connection with a
major crime committed by a visitor to a national forest) might prompt
a county to devote all of its federal in lieu of taxes payments to
that activity in a particular year. See page 16 & note 12, supra.
Alternatively, state statues may require that some programs be fully
funded by local taxes, so that the county normally would choose not to
devote its share of federal in lieu of taxes payments to those
programs, but instead to cover shortfalls in other programs. For
example, South Dakota law appears to require county auditors to set a
levy on taxable property at a rate sufficient to meet the school
budget. S.D. Codified Laws Ann. Secs. 10-12-29, 13-11-3 (rev. 1982).
See Rapid City Area School District No. 51-4 v. Pennington County
Auditor, 284 N.W.2d 308 (S.D. 1979). To the extent S.D. Codified Laws
Ann. Sec. 5-11-6 (rev. 1980) prevents counties from applying the
federal in lieu of taxes payments to programs for which the funds are
most needed, it frustrates Congress's intent that local governments
have such discretion and that they have funds that could be used to
provide the services to federal lands with which Congress was most
concerned. /15/
It might be argued that a county could use creative budgeting to
avoid the effect of the state restriction on allocation of federal
payments. We doubt that such an approach would be feasible. As noted
above, there are state statutes governing funding of the school
budget. Thus, a county apparently may not reduce a school district's
share of local taxes in anticipation that federal in lieu of taxes
payments would meet any shortfall. Even if counties were free to
expend or allocate locally raised taxes as they wished, it is doubtful
that they would be able to adjust their tax distribution plans in such
a way as to avoid any increment to a fully funded activity (e.g., a
school district) by virtue of the federal payments. As Congress
recognized (see page 16, supra), county revenues, including other
federal impact program funds, some of them specially earmarked, vary
from year to year. /16/ Counties must budget in advance, often long
before they actually receive federal impact aid funds or in lieu of
taxes payments. Moreover, the State presumably retains power to
control a county's expenditure of nonfederal funds and might well
intervene if a county were seen to be evading the intent of the State
directive.
At all events, the counties receiving in lieu of taxes payments
from the United States ought not be pushed into complex schemes to
circumvent state intrusion. The purpose of these federal payments is
to give local governments a minimum amount of federal money to use at
their discretion to fill in gaps, to reduce fiscal and budgetary
swings, and to allow more effective planning. This can be
accomplished only through local control and decisionmaking,
unconstrained by directives contained in state statutes.
E. It is thus clear that S.D. Codified Laws Ann. Sec. 5-11-6 (rev.
1980) conflicts with the federal Payments in Lieu of Taxes Act. The
South Dakota statute requires localities to expend the federal in lieu
of taxes payments in a particular manner; that is inconsistent with
the language and legislative purpose of the federal statute, under
which local governments are to have discretion in apportioning the
payments. The federal statute, read in the light of the underlying
congressional purpose, leaves no room for such state interference with
local discretion. Cf. Chicago & N.W. Transportation Co. v. Kalo Brick
& Tile Co., 450 U.S. at 318; Hisquierdo v. Hisquierdo, 439 U.S. 572,
583-585 (1979); Hergenreter v. Hayden, 295 F. Supp. 251 (D. Kan.
1968); Shepheard v. Godwin, 280 F. Supp. 869 (E.D. Va. 1968). /17/
Since the validity of the federal law is not in doubt, /18/ it follows
that, to the extent the South Dakota statute purports to affect the
distribution of federal in lieu of taxes payments, it is invalid under
the Supremacy Clause.
CONCLUSION
The judgment of the South Dakota Supreme Court should be reversed.
Respectfully submitted.
REX E. LEE
Solicitor General
F. HENRY HABICHT, II
Assistant Attorney General
LOUIS F. CLAIBORNE
Deputy Solicitor General
CAROLYN F. CORWIN
Assistant to the Solicitor General
ANNE S. ALMY
ANNE H. SHIELDS
Attorneys
JUNE 1984
/1/ Title 31 of the United States Code was recodified in 1982 by
Pub. L. No. 97-258, 96 Stat. 877 et seq. The recodification did not
make any substantive change in the law. See H.R. Rep. 97-651, 97th
Cong., 2d Sess. 3 (1982). The Payments in Lieu of Taxes Act now
appears at 31 U.S.C. 6901 et seq., instead of 31 U.S.C. (1976 ed.)
1601 et seq.
/2/ 31 U.S.C. 6902(a) provides:
The Secretary of the Interior shall make a payment for each
fiscal year to each unit of general local government in which
entitlement land is located. A unit may use the payment for any
governmental purpose.
/3/ 31 U.S.C. 6901 (as amended by Pub. L. No. 98-63, Sec. 3(1), 97
Stat. 323) provides in pertinent part:
(2) "unit of general local government" means
(A) a county (or parish), township, borough existing in
Alaska on October 20, 1976, or city where the city is
independent of any other unit of general local government, that:
(i) is within the class or classes of such political
subdivisions in a State that the Secretary of the Interior, in
his discretion, determines to be the principal provider or
providers of governmental services within the State; and (ii)
is a unit of general government as determined by the Secretary
of the Interior on the basis of the same principles as were used
on January 1, 1983, by the Secretary of Commerce for general
statistical purposes. The term "governmental services"
includes, but is not limited to, those services that relate to
public safety, environment, housing, social services,
transportation and governmental administration * * *.
/4/ The problem of the effect on state and local governments of the
tax immunity of federal lands within their boundaries has existed for
many years. In 1806, the Attorney General issued the first legal
opinion regarding nontaxability of federal lands by state governments.
1 Op. Att'y Gen. 157 (quoted in VanBrocklin v. Tennessee, 117 U.S.
151, 163 (1886)). This Court's opinions in VanBrocklin and in
Wisconsin Central R.R. v. Price County, 133 U.S. 496 (1890),
established the "inflexible rule, with no exceptions, that property of
the Federal Government may not, absent the express consent of the
Government, be taxed by a State or subdivision thereof." Jurisdiction
Over Federal Areas Within the States: Report of the Interdepartmental
Committee for the Study of Jurisdiction Over Federal Areas Within the
States, Pt. II, at 267 (1957).
/5/ 31 U.S.C. 6903(a)(1) contains a partial listing of these impact
aid programs.
/6/ Pub. L. No. 88-606, 78 Stat. 982 et seq.
/7/ Ark. Stat. Ann. Sec. 80-726 (repl. 1980), the state statute at
issue in Altus-Denning School District No. 31, required county
treasures to apportion to school districts any funds received from
income from national forests. The district court concluded that,
assuming arguendo that the Arkansas statute applied to funds under the
Payments in Lieu of Taxes Act, the state statute would be invalid
under the Supremacy Clause because it would conflict with the "any
governmental purpose" language of the federal statute. 568 F. Supp.
at 102.
/8/ Another provision of the federal statute, 31 U.S.C. 6904(b),
provides additional support for this conclusion. Section 6904(b)
provides expressly that in the case of certain additional short-term
federal payments in connection with acquisition of park or wilderness
areas, the Secretary "shall distribute payments proportionally to
units and school districts that lost real property taxes because of
the acquisition of the interest." The express directive in Section
6904(b) reinforces the conclusion that Congress did not wish funds
authorized under 31 U.S.C. 6902(a) to be earmarked for school
districts, but rather intended for local governments themselves to
have the discretion to allocate such funds. See Fedorenko v. United
States, 449 U.S. 490, 512 (1981).
/9/ The South Dakota Attorney General has also suggested that the
federal statute does not make it unlawful for a state legislature to
require that federal in lieu of taxes payments be used in a manner
similar to other tax monies raised by the county. 1979-1980 S.D.
Att'y Gen. Biennial Rep. 147, 149 (Official Op. No. 80-12). That
opinion notes (ibid.), however, that "it is not the role of the
Attorney General's Office to advocate the unconstitutionality of state
statutes."
The South Dakota Attorney General was notified of the challenge to
the state statute in this case (see J.S. App. 9a), but apparently
chose not to participate. The State was a party to the earlier
proceedings in federal court. See page 6, supra.
/10/ The South Dakota Supreme Court found it unnecessary to examine
the legislative history because it viewed the language of the statute
as "plain, clear and rational" (J.S. App. 3a). As we have shown, the
court appears to have misread the statutory language. But in any
event, the court clearly erred in declining to examine the legislative
history and underlying purpose of the statute. See Dickerson v. New
Banner Institute, Inc., No. 81-1180 (Feb. 23, 1983), slip op. 15-16;
Train v. Colorado Public Interest Research Group, Inc., 426 U.S. 1,
9-11 (1976).
/11/ Contrast, e.g., Rogers v. Brockette, 588 F.2d 1057, 1071-1073
(5th Cir.), cert. denied, 444 U.S. 827 (1979), in which the court
found no indication that Congress had intended to exclude states from
the administration of a federal subsidy program.
/12/ See also Payments in Lieu of Taxes: Hearings on H.R. 9719
Before the Subcomm. on Energy and the Environment of the House Comm.
on Interior and Insular Affairs, 94th Cong., 1st Sess. 146 (1976)
(statement of Kenneth Lee, Lincoln County commissioner) (noting that
"five or six different things hit us in one year," including a
criminal trial costing the county $25,000 for a transient murder
committed in Lincoln County); id. at 280-281 (statement of Rep.
Simon) (noting need for flexibility in distribution of federal funds,
since "the need in Pope County is not for the schools").
/13/ See also 58 Comp. Gen. 19, 24 (1978), in which the Comptroller
General, in the course of responding to an inquiry from the Interior
Department concerning computation of federal in lieu of taxes
payments, noted that it was "obvious" from the legislative history
that Congress was concerned that such funds "should be distributed to
the local governments, who then were to make the necessary decisions
on how to distribute them to meet their internal needs."
/14/ Two courts have found the Secretary's regulations to be
consistent with the federal statute in not requiring payment of
federal in lieu of taxes funds to school districts. See Altus-Denning
School District No. 31 v. Franklin County, 568 F. Supp. at 101;
Kendall v. Towns County, 146 Ga. App. at 762, 247 S.E.2d at 579.
/15/ The South Dakota Supreme Court appears to have believed that a
conflict between the federal and state statutes would not exist unless
Congress had actually prohibited federal in lieu of taxes payments
from being used for school districts. See J.S. App. 4a. This
overlooks the importance of Congress's concern that local governments
themselves exercise discretion in choosing how to allocate the federal
payments. As we have explained, such discretion can be of
considerable significance in enabling a local government to meet the
need for services created by the presence of federal lands within its
boundaries. A state statute that limits local government discretion
can therefore be regarded as conflicting with the congressional
scheme, even in the absence of any express prohibition on use of the
federal funds.
/16/ Thus, counties are subject to greater uncertainty in budgeting
than if they received a single federal payment measured as the
equivalent of the amount they would receive if federal lands were
subject to local taxation.
/17/ In Hergenreter and Shepheard, state statutes required
deduction from a school district's share of state educational funding
of amounts equivalent to certain federal payments made to school
districts impacted by the presence of federal land and federal
employees. In both cases, three-judge courts held the statutes
invalid on the ground that they conflicted with the purpose of the
federal program, which was to supplement local revenues, not to
replace them.
/18/ It is indisputable that the federal government has authority
to fix the terms on which it disburses federal funds. See, e.g.,
Pennhurst State School v. Halderman, 451 U.S. 1, 17 (1981). Of
course, we do not suggest that the Payments in Lieu of Taxes Act
places any constraints on a state's ability to control the use of
state in lieu of taxes payments (i.e., payments from the state to
counties on account of tax-exempt state lands). Nor does the federal
statute impose any limitations on the manner in which states perform
their functions or on their relations with counties.